Asia: Stocks bounce back as US dollar strengthens on good US jobs data

[SINGAPORE] Asian stocks recouped some of last week's losses after strong United States jobs data reinforced confidence in the world's largest economy. The US dollar strengthened, while crude oil extended its slump after Opec refused to curb production in the face of a global glut.

Shares from Japan to Australia paced Friday's surge in US equities following the bigger-than-expected increase in American nonfarm payrolls. With traders and economists aligned on the data's implications for next week's Federal Reserve meeting, the greenback solidified its ascent, strengthening against the currencies of South Korea and New Zealand.

US crude is back below US$40 a barrel amid bets the Organisation of Petroleum Exporting Countries' (Opec's) move will see prices slide below US$38 in under two weeks.

"The post-payrolls rally in US equities was notable," Kymberly Martin, a markets strategist in Wellington at Bank of New Zealand, said in an e-mail to clients.

"The market appears to have read the data as reason for confidence in the economic outlook, rather than taking flight at the prospect of imminent reduction in US Fed stimulus."

The 211,000-worker increase in payrolls was more than economists had predicted, cementing the view that the US economy is strong enough to withstand the first interest-rate increase in almost a decade. Meanwhile, European Central Bank chief Mario Draghi tried to soothe investors disappointed by his move on economic support last week, signaling on Friday that the bank will add stimulus as needed. The Bank of Japan's governor speaks Monday as the divergence in global monetary policy becomes more stark.

The MSCI Asia Pacific Index climbed 0.4 per cent as of 9:53 am Tokyo time, rallying from a second straight weekly retreat. All but two of the measure's main industry groups climbed, with energy producers down 0.6 per cent.

Japan's Topix index added 1.1 per cent, while Australia's S&P/ASX 200 Index climbed 0.7 per cent, after sliding 1 per cent last week. The Kospi index in Seoul was little changed with New Zealand's benchmark.

In the futures market, contracts on the Standard & Poor's 500 Index were down 0.1 percent following Friday's 2.1 per cent surge in the gauge, the steepest one-day climb since Sept 8.

Futures on Hong Kong's Hang Seng Index rose 0.5 per cent in most recent trading, while those on the Hang Seng China Enterprises Index, which tracks mainland Chinese shares listed in the city, climbed 0.8 per cent. FTSE China A50 Index futures added 0.8 per cent on Friday, after the Shanghai Composite Index capped its biggest weekly advance in a month.

The Asia-Pacific gauge slid last session after Draghi announced a deposit-rate cut and extension to his bond-buying program that fell short of what some traders had envisaged. The regional index slipped 0.8 per cent in the week, amid a 0.5 per cent decline in MSCI's All-Country World Index.

Friday's headlines brought to an end three days of economic developments that will help shape the direction of markets into 2016 as the Federal Reserve prepares to boost borrowing costs, while central banks in Europe and Asia commit to expanding stimulus if necessary.

Odds of a Fed rate hike next week are at 74 per cent, according to futures trading monitored by Bloomberg, while only five of the 73 economists surveyed by Bloomberg are now predicting rates will be left on hold at the bank's last meeting of the year.

Fed officials will be hoping that given the consensus view, "any hike does not cause much in the way of market ruffles," Philip Borkin, a senior economist in Auckland at ANZ Bank New Zealand, wrote in a client note Monday. "But what the past week taught us is that when a view becomes "consensus," market positioning is an important thing to keep in mind. How the market reacts to a Fed hike still contains an element of uncertainty."

The Bloomberg Dollar Spot Index, a gauge of the US currency against 10 major peers, rose 0.1 per cent after climbing 0.4 per cent Friday as the dollar strengthened against more than half of its 16 major peers. The payrolls data soothed markets, with the JPMorgan Global FX Volatility Index indicating expectations for price swings slumped 2.5 per cent on Friday to the lowest level in nearly four months.

The euro was steady at US$1.0869 after falling 0.5 per cent last session, while the kiwi led losses Monday, falling 0.5 per cent after being one of the few major currencies to strengthen Friday. The Reserve Bank of New Zealand reviews monetary policy Dec 10, with most economists surveyed by Bloomberg projecting another cut in rates.

The Korean won slipped 0.8 per cent, weakening for the seventh time in eight days.

Bonds Speculation the Fed will take a gradual approach to policy tightening underpinned gains in US Treasuries Friday. Yields on US notes due in a decade added one basis point Monday to 2.29 per cent, following last week's five basis-point decline.

Yields on 10-year bonds from New Zealand and Japan fell at least one basis point. Those on similar maturity Australian debt were little changed at 2.95 per cent.

While traders are betting on three quarter-point increases in the next 12 months - fewer than the Fed's own forecasts imply - they have a history of underestimating the degree of tightening when the Fed finally does start to move, an analysis by Renaissance Macro Research showed.

"The return on not doing anything, and fading what the Fed is telling you, has been pretty good up until now," Alex Roever, the head of US interest-rate strategy at JPMorgan, the top- ranked firm for fixed-income research by Institutional Investor magazine, said during a panel discussion on Dec 2. "We are coming to an inflection point on that."

West Texas Intermediate crude dropped 1.2 per cent to US$39.51 a barrel, on track for its lowest settlement since Aug 26 after sinking 2.7 per cent on Friday. Brent lost another 0.5 per cent to US$42.80 a barrel in London.

Friday's Opec meeting extended from four hours into seven as members rebuffed the idea of limiting output to control prices. Instead, a daily production target of 30 million barrels - which countries have been breaching for the past 18 months - was set aside in favor of a Saudi Arabia-led policy of pumping until rivals are squeezed out of their market share. Opec has set an output target almost without interruption since 1982, though members often ignored it.

"Lots of people said that Opec was dead; Opec itself just confirmed it," Jamie Webster, a Washington-based oil analyst for IHS Inc., said in Vienna.

US crude has slumped almost 40 per cent over the past year as a surplus of supply globally weighed on prices. A proposal on Thursday from Venezuela for a 5 per cent cut in Opec's production went nowhere as Iran joined the ranks of members refusing to accept any curbs. Wagers on WTI falling below US$38 have increased five-fold from this quarter's daily average to a record high, according to exchange data compiled by Bloomberg.

Gold for immediate delivery slipped 0.3 per cent to US$1,083.67 an ounce after soaring 2.3 per cent on Friday, despite the US payrolls data solidifying prospects of a Fed rate hike this month. The precious metal capped its first weekly advance since mid-October on Dec. 4, as traders speculated the pace of monetary tightening will be gradual.

China updates on its foreign-currency reserves Monday, while Australia posts data on job advertisements. Taiwan and Sri Lanka report on trade and Thailand is closed for a holiday.


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